Dispatch Analysis| 'Strip-mall casinos'

Sunday

Jul 29, 2012 at 12:01 AMJul 29, 2012 at 9:44 AM

In a state where gambling is exploding - with four 24-hour casinos, "racinos" at seven horse-race tracks, Keno, Powerball and the state lottery - one form of gambling remains completely unregulated and untracked. Ohio has at least 772 Internet sweepstakes cafes, mysterious businesses that some call "strip-mall casinos." They have no rules, required payouts or oversight.

Alan Johnson, The Columbus Dispatch

In a state where gambling is exploding — with four 24-hour casinos, “racinos” at seven horse-race tracks, Keno, Powerball and the state lottery — one form of gambling remains completely unregulated and untracked.

Ohio has at least 772 Internet sweepstakes cafes, mysterious businesses that some call “ strip-mall casinos.” They have no rules, required payouts or oversight. The only thing cafe owners must do is file an affidavit of operation with the state.

There is a moratorium on new Internet cafes but only until June 30, 2013. In most cases, no one knows where the money to start cafes comes from or where the profits go.

Owners and operators do not have to undergo background checks.

Unlike slot machines and video-lottery terminals, which are inspected by the state and must, by law, pay at least 85 percent of the money bet back to customers, there are no inspections or required payouts for Internet terminals.

While the Internet cafes are a far cry from the storefronts that offer customers a spot to go online, operators and proponents say what goes on inside these establishments isn’t gambling at all, but simply a sweepstakes. Columbus attorney Kurt Gearhiser, who represents about 150 cafe locations, said they offer product promotions similar to the Monopoly game that McDonald’s restaurants often run.

“You get some fries or a drink and get a entry ticket to win a prize. That’s no different than going to an Internet cafe and having a chance to win $5.”

Gearhiser said his clients welcome regulation but don’t want to be regulated out of business.

The amount of money being spent at cafes and profits made by owners are among many unknowns. Several companies provide startup services for new sweepstakes businesses. One website says, “An Internet cafe gives you an opportunity to convert every minute of your life into money. Almost every time people think that starting a business involves high risk, but that’s not the case with an Internet cafe business.”

The sweepstakes machines — essentially computers with access to games that play like video-slot and poker machines — can readily be found at Internet cafes, clubs, bars, bowling alleys, restaurants, carryouts, and gas stations. There are 35 cafes in Franklin County alone, with an even heavier concentration in northern Ohio.

There is even a cafe at a Columbus church.

The Rev. Joseph J. Mauriello of the Guiding Light Spiritualist Church, 3195 Morse Rd., was desperately looking for a way to raise money to replace dwindling proceeds from church bingo games. He came up with the idea of operating an Internet cafe and now has 20 machines open for business six days a week from 11 a.m. to 10 p.m. The cafe is closed on Sunday for church, which is held in an adjoining room.

“At the moment, we’re struggling to survive,” he said. “If they want us to regulate, fine, but give the Internet games to the charities. What we’re doing is legal.”

Mauriello said his customers range in age from 18 to 80. Some stay a few minutes and spend very little. Others linger longer and spend more. He said all proceeds go to the church, a “God-centered religion” that doesn’t rely on the Bible for guidance.

James Haning, a Hilliard man who operates 53 cafes in Ohio and some in Michigan, won a fight with the city of Heath last year over Starz Internet Cafe, 789 Hebron Rd. The city wanted Haning to pay a $5,000 application fee, $500 apiece for his 120 machines, and follow other regulations. A judge stopped the city from closing the cafe; Starz remains in business.

Here’s how cafes work:

A customer pays for either Internet time or a phone card. The card is used in a card-reader, that links to the computer and gives the player the card’s face-value amount of money to gamble. Some require customers to swipe their driver’s license, capturing information from the magnetic strip on the back.

At that point, whether the customer wins or loses is already decided, much like buying a scratch-off lottery ticket. Playing the computer games is optional, although nearly everyone does. But no matter what the customer does or doesn’t do in playing the casino-style games, the payout is predetermined. How it is determined and the amount of the payoff are hazy.

Customers who buy a $5 phone card, for example, leave with a phone card with $5 in usable long-distance phone service. Winning or losing does not affect the value of the card.

Those who buy Internet service can play the games, check their email or surf the net.

Cafes sometimes offer customers soft drinks and snacks.

Some have one, two or three machines, but others have 100 or more, according to documents obtained from Attorney General Mike De-Wine’s office. Customers spend an average of $20 to $50 per visit.

“We think the only reason they are popular and profitable is, they are gambling,” said Keith Whyte, executive director of the National Council on Problem Gambling. “We’ve had numerous complaints from customers. They are exploiting people with gambling problems.”& amp; amp; amp; amp; amp; amp; amp; amp; amp; amp; lt; /p>

Many cafes are located in low-income areas and often are used by retirees, Whyte said. The council is concerned because the cafes contribute nothing to problem-gambling treatment programs, something casinos are required to do by law.

DeWine is frustrated by what he sees as the anything-goes nature of the cafes in Ohio. He’s tried for 18 months to persuade state lawmakers to act; the only result was a registration requirement and one-year moratorium on new businesses, which expires June 30, 2013.

“We would not concede at all that these are legal,” De-Wine said. “But as a practical matter, with a couple of exceptions, law enforcement has felt uncomfortable going after them.

“It’s irrelevant to me what you call it,” he said. “All we’re saying is, there’s a lot of money going out, and it’s unregulated. And nobody can tell you what the odds are.”

Rob Nichols, spokesman for Gov. John Kasich, said, “Let’s be clear: This is gambling, and we’re very concerned with the gray, unregulated area in which it operates, as well as the explosive proliferation it’s seen.”

Cuyahoga County Prosecutor Bill Mason investigated and temporarily shut down some Internet operations in Cleveland, indicting 10 people and seven businesses on illegal gambling, money laundering and racketeering charges. Mason said some have connections to the Ukraine and that four cafes accounted for $50 million in business; neither allegation has been substantiated.

Judge Karen Russo of Cuyahoga County Common Pleas Court allowed four of the cafes to reopen last month, deciding that they are legitimate businesses and not gambling.

A similar decision came in 2009 after Toledo police charged Players Club, an Internet cafe, with operating a gaming house. Toledo Municipal Judge Francis X. Gorman ruled that the “element of risk” was missing because, even if the sweepstakes player did not win money, he still left with a product — a phone card.

Ohio has plenty of company in the murky water of Internet cafe regulation. Attorneys general and law-enforcement officials in California, Florida, Indiana, Michigan and Virginia have tried to shut them down, with limited success.